Trade Leverage – Friend or Foe?


AllStars Trader products are offered as CFDs (Contract for Differences) so you can use
leverage for your trading. Trading with leverage is exactly the same as getting a loan to
make a purchase. The difference is that when trading you will be looking to make a profit so
that you can bank this money and make further trades, rather than keep something you have
bought.

In simple terms, leverage can make or break your trading. With leverage, you can increase
your profits or, of course, accelerate any losses. It is always a double-edged sword.
So, what do we mean by leverage? This is the term used to describe any type of trading that
involves borrowing money to increase the number of assets you can buy, over and above
what you can pay for with cash.


At AllStars, you will place the initial capital and we will then fund the whole purchase price.
Any difference between how much you purchased the asset for (opening price) and how
much you sold it for (closing price) is settled in your account balance.


If you have significant leverage and the asset appreciates in value, then the amount owed to
AllStars is taken out of your profits for that trade. However, if the player or traditional asset
that you have backed goes south then we will take the loss from what is left in your account.
If, for example, you think that James Ward-Prowse is one of the most underrated players in
the English Premier League and that his AllStars price will increase you may decide to buy
his ADRIX™ stock.


On our platform, you can get up to a 1:100 leverage ratio. If you place US$200 into your
account that means that you can leverage your trading position by 100 (US$200×100), which
will give you the ability to invest US$20,000 in the player.


You would effectively be borrowing US$19,800 from us. If James Ward-Prowse has the
season many people think he will, then you can make a big profit. But, if he fails to perform
then you will lose out, and instead of posting profit, you will be in danger of losing all your
deposit.


If your trade goes as planned and through the season James Ward-Prowse price increased
from say US$10 to US$12.30 (an increase of US$2.3) and, without leverage, you had
bought 20 James Ward-Prowse CFDs (20 x 2.3) you would make US$46 profit. However, if
you had used all your leverage, you could have banked US$4,600.

Tips on Using Leverage in Trading

This sets out the benefits and the problem. There are huge upsides, but only if the trade
goes in the right direction. If you use all your leverage and all your deposit you are taking a
great risk, and successful trading is all about taking calculated risks. We, therefore,
recommend that you always:-

1. Set out your financial targets
Know exactly what you are prepared to lose if the trading does go the wrong way.

2. Diversify your trading
Do not put everything onto one player or asset, spread your investments so that if
one trade fails the others can cover these losses.


3. Analyse and research
Always looking in detail at the stats and performance history of the trades you want
to make. Research is vital for all successful investments.


4. Protect your trade
Having a Stop-Loss is essential as well as setting up a Take Profit order so that you
can avoid spiralling losses or pocket the money you were looking for

Differences Between Leverage and Margin


One question we are often asked is what is the difference between leverage and margin?
The easiest way to describe them is that leverage is borrowing money to increase your
trades while margin is the amount of money you need to access and maintain the trading
leverage.


It is very similar to taking out a loan (leverage). You need to put down a deposit and maintain
this to be able to service the loan (margin). In trading, if you start making losses, then you
may have to increase the margin on your account, or face having a ‘margin call’ which could
lead to your account being closed.


At AllStars Trader we want you to be able to take advantage of the available trading
leverage and maximise your investment, but we also want you to be successful. Our
ADRIX™ data-based sports stocks allow you to trade the players and competitors you
follow. You can use your knowledge and passion for sports to guide your investments.

2. Diversify your trading
Do not put everything onto one player or asset, spread your investments so that if
one trade fails the others can cover these losses.
3. Analyse and research
Always looking in detail at the stats and performance history of the trades you want
to make. Research is vital for all successful investments.
4. Protect your trade
Having a Stop-Loss is essential as well as setting up a Take Profit order so that you
can avoid spiralling losses or pocket the money you were looking for.
Differences Between Leverage and Margin
One question we are often asked is what is the difference between leverage and margin?
The easiest way to describe them is that leverage is borrowing money to increase your
trades while margin is the amount of money you need to access and maintain the trading
leverage.
It is very similar to taking out a loan (leverage). You need to put down a deposit and maintain
this to be able to service the loan (margin). In trading, if you start making losses, then you
may have to increase the margin on your account, or face having a ‘margin call’ which could
lead to your account being closed.
At AllStars Trader we want you to be able to take advantage of the available trading
leverage and maximise your investment, but we also want you to be successful. Our
ADRIX™ data-based sports stocks allow you to trade the players and competitors you
follow. You can use your knowledge and passion for sports to guide your investments.

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